MC Explains | Why RBI did not accept any bids on 91-day T-bills in a recent auction

During the auction, 91-day T-bills received 154 competitive bids worth Rs 45,949.50 crore and 10 non-competitive bids worth Rs 880.711 crore.

The Reserve Bank of India (RBI) rejected all bids on the 91-day treasury bills (T-Bill) at auction held on March 29, in the first instance nearly after seven years.

The last time the RBI rejected bids on the 91-day T-Bills was on February 24, 2016, as per the central bank's database.

If you have read about the development and want to understand more about it, here is an explainer.

What are T-Bills?

The Government of India issues treasury bills as a type of money market instrument that functions as a promissory note, guaranteeing repayment at a later date.

Treasury bills are typically short-term borrowing tools, with a maximum tenure of 364 days, and available at a zero-coupon rate of interest. These bills are issued at a discount to the published nominal value of government securities (G-secs).

Why did RBI reject all bids?

According to the market participants, most investors sought higher cut-off yields, which were almost closer to the cut-off yield on the 182-day T-Bills, hence RBI rejected all bids. Some dealers said investors were bidding in the range of 7.15-20 percent on these papers.

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Why did investors demand higher yields?

According to money market dealers, some mutual funds were facing redemption pressure in their liquid funds. Hence, they sold T-Bills at a higher yield in the secondary market leading to higher demand for cut-off yield in the auction.

The redemption pressure surfaced after a few investors started moving their funds from liquid funds to duration funds, said another bond dealer at a state-owned bank.

How many bids were received?

During the auction, 91-day T-bills received 154 competitive bids worth Rs 45,949.50 crore and 10 non-competitive bids worth Rs 880.711 crore, as per the full auction result release. The notified amount for the security was Rs 9,000 crore.

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What was the cut-off on other securities?

The central bank set a 7.2820 percent cut-off yield on 182-day T-Bills and a 7.3064 percent cut-off yield on 364-day T-Bills. It accepts the full amount on 182-day and 364-day T-Bills.

On the 182-day T-Bill, the central bank received 156 competitive bids worth Rs 50,558 crore, and it accepted 43 bids worth Rs 15,963.568 crore.

Similarly, on the 364-day security, the central bank received 140 competitive bids worth Rs 35,745 crore, while it accepted 40 bids worth Rs 13,980.482 crore. It accepted the remaining amount through non-competitive bids on both securities.